Harvard Case - Exubera and NICE
"Exubera and NICE" Harvard business case study is written by Stefanos Zenios, Robert Chess, Lyn Denend. It deals with the challenges in the field of Operations Management. The case study is 14 page(s) long and it was first published on : Jan 2, 2008
At Fern Fort University, we recommend that Exubera re-evaluate its operations strategy and supply chain management to address the challenges posed by the NICE decision. This involves a comprehensive overhaul of its manufacturing processes, product development, and logistics to ensure the long-term viability of the product. This recommendation is based on a detailed analysis of the case, considering factors such as innovation, technology and analytics, international business, and environmental sustainability.
2. Background
Exubera, a novel inhaled insulin product developed by Pfizer, faced a critical decision when the National Institute for Health and Clinical Excellence (NICE) in the UK declined to recommend its use within the National Health Service (NHS). This decision was based on the high cost of Exubera compared to traditional insulin therapies, despite its potential benefits for patients. The case study focuses on the challenges faced by Exubera in the wake of this decision, highlighting the complexities of product development, market entry, and pricing strategies in the pharmaceutical industry.
The main protagonists of the case study are:
- Pfizer: The pharmaceutical giant responsible for developing and marketing Exubera.
- NICE: The independent body responsible for evaluating the cost-effectiveness of healthcare treatments in the UK.
- Patients: The target audience for Exubera, who stand to benefit from its potential advantages.
3. Analysis of the Case Study
This case study presents a complex scenario where innovation and product development are challenged by the economic realities of the healthcare market. The following frameworks can be used to analyze the case:
Strategic Framework:
- Porter's Five Forces: Analyzing the competitive landscape reveals intense rivalry among pharmaceutical companies, a high threat of substitutes (traditional insulin therapies), and significant bargaining power of buyers (NHS).
- Value Chain Analysis: Exubera's value chain is complex, involving R&D, manufacturing, distribution, and marketing. The NICE decision highlights the importance of cost optimization along the entire value chain.
Financial Framework:
- Cost-Benefit Analysis: NICE's decision was based on the cost-effectiveness of Exubera compared to existing treatments. Pfizer needs to demonstrate a strong return on investment to justify the high price point.
- Net Present Value (NPV): Evaluating the long-term profitability of Exubera requires considering factors such as market penetration, pricing strategies, and potential future cost reductions.
Operational Framework:
- Supply Chain Management: Exubera's complex production processes and logistics require a robust and efficient supply chain to ensure consistent product availability.
- Lean Manufacturing: Implementing lean principles can help optimize inventory management, reduce waste, and improve overall efficiency.
4. Recommendations
To address the challenges posed by the NICE decision, Exubera needs to adopt a comprehensive strategy that focuses on:
- Cost Reduction:
- Process Improvement: Implement Six Sigma and Lean Manufacturing principles to identify and eliminate inefficiencies within the manufacturing process.
- Supply Chain Optimization: Leverage technology and analytics to improve demand forecasting, optimize inventory control, and streamline logistics.
- Outsourcing: Consider outsourcing certain manufacturing or distribution activities to reduce costs and improve efficiency.
- Value Proposition Enhancement:
- Product Development: Focus on innovation to improve the efficacy and convenience of Exubera, potentially leading to a stronger value proposition for patients.
- Marketing: Develop a targeted marketing campaign that highlights the unique benefits of Exubera, emphasizing its potential to improve patient outcomes.
- Market Expansion:
- International Business: Explore opportunities in other markets where the regulatory environment and pricing structures are more favorable.
- New Business Models: Consider alternative business models such as pay-for-performance or value-based pricing to address the cost-effectiveness concerns.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Pfizer's core competency lies in drug development and innovation. The recommendations align with this by focusing on process improvement and product development to enhance the value proposition of Exubera.
- External Customers and Internal Clients: The recommendations prioritize the needs of both patients and healthcare providers, aiming to improve patient outcomes and reduce costs for the NHS.
- Competitors: The recommendations aim to position Exubera as a competitive alternative to traditional insulin therapies by addressing cost-effectiveness concerns and enhancing its value proposition.
- Attractiveness ' Quantitative Measures: The recommendations are expected to improve profitability by reducing costs, increasing market share, and achieving a stronger return on investment.
6. Conclusion
Exubera faces significant challenges in the wake of the NICE decision. However, by implementing a comprehensive strategy that focuses on cost reduction, value proposition enhancement, and market expansion, Exubera can overcome these challenges and establish itself as a viable treatment option for patients with diabetes. This requires a commitment to continuous improvement, innovation, and a strategic approach to supply chain management.
7. Discussion
Other alternatives not selected include:
- Abandoning Exubera: This option would be a significant loss for Pfizer, given the investment already made in the product. It also fails to address the needs of patients who could benefit from Exubera.
- Maintaining the status quo: This would likely lead to continued financial losses and a decline in market share.
The key assumptions of our recommendations are:
- Pfizer is committed to the long-term success of Exubera.
- The market for inhaled insulin is expected to grow in the future.
- Pfizer can successfully implement the recommended changes to its operations and supply chain.
8. Next Steps
To implement the recommendations, Pfizer should:
- Form a cross-functional team to oversee the implementation of the strategy.
- Develop a detailed implementation plan with clear timelines and milestones.
- Conduct ongoing monitoring and evaluation to track progress and make adjustments as needed.
By taking these steps, Pfizer can ensure the long-term success of Exubera and position it as a leading treatment option for patients with diabetes.
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Case Description
Historically, the biggest obstacle that healthcare innovators, such as pharmaceutical and medical device manufacturers, needed to overcome on their way to market was securing approval by the U.S. Food & Drug Administration (FDA) or other international regulatory authorities. However, in the last decade, a new (sometimes even more challenging) hurdle had to be cleared: insurance coverage and reimbursement. Payers--either public payers, such as Medicare in the U.S. and the National Health Services (NHS) in the U.K., or private commercial payers, such as Blue Cross/Blue Shield and UnitedHealth Grou--could deny coverage for a technology that had received regulatory approval if they determined that the supporting evidence did not adequately demonstrate that the technology was superior to existing treatment alternatives that were already being reimbursed. This had the potential to create a potentially adversarial relationship between payers and innovators in cases where they had conflicting interpretations of the evidence regarding the cost, benefits, and risks of new technologies. The challenges to innovators in managing this conflict are illustrated in this case study by an example: the 2006 decision by the U.K.'s NHS to deny coverage for Exubera, a new form of inhaled insulin.
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